Monday, October 19, 2009

Potash: BHP could pay USD 125-130 for Potash Corp., bid would be 13% EPS accretive - Merrill Lynch (POT)

UPDATE below.
Original post:
The stock was recently up $4.65 at $102.05.
From Notable Calls:
Merrill Lynch/BAM is out with a major call on Potash (NYSE:POT) saying BHP Billiton should buy the potash producer.

Firm estimates that an all-cash bid for POT at a 30% premium could be 13% EPS accretive in years 1 and 2. From discussions with clients during recent marketing, they believe the market is receptive to BHP acquiring potash assets.

Why is POT the right deal for BHP?
1) BHP has an interest in being a world-scale producer of Potash. This deal provides instant scale. 2) BHP wants to own world class long life, large scale, low cost assets. We think POT ticks all these boxes. 3) POT dovetails nicely with BHP’s existing land position and Greenfield project in Canada. 4) BHP’s balance sheet is ungeared and the company generates huge cashflows. An all cash acquisition regears the company and adds an appropriate, complementary asset. Merrill believes that Potash as an industry matches BHP’s core competencies i.e. 1) Project development 2) Resource operation management 3) Resource marketing....

...Notablecalls: WOW - I sure didn't expect a call like this one from a firm the size of reputation (no pun) of Merrill/BAM. Surely, there have been hints from other firms and even speculation that a deal may be in works but nothing on the scale we are seeing this morning.

There were some positive rumbling regarding the coming Chinese potash price settlement on Friday, so I think the stage may be set for a large upside move in Potash shares.

Note the co reports this week but given they have already pre-announced there isn't much headline risk.

I think POT will trade up today to the tune of 5%+ meaning anything below the $100 level is a buy....MORE

Update: "BHP would face competition from China, Canada and rivals in bid for Potash Corp. (POT)"